Taking control of your finances: A plan to reduce debt and build savings

Even if you're struggling with credit card debt, feel like you’re living paycheck to paycheck, or find it difficult to build enough savings, there are proven strategies to help you regain control of your finances, reduce debt, and start to build your savings so that you feel like you have your finances under control. No matter what your starting point is, there are easy steps you can take to feel more secure and confident about your money.

What you'll learn:

• Know your personal balance sheet
• Understand good vs. bad debt
• Calculate your debt-to-income ratio
• Track and adjust spending
• Create a 12-month budget
• Pay off high-interest debt first
• Automate savings for success
• Optimize everyday spending
• Take the next step to financial wellness

Know your personal balance sheet

Regaining financial confidence begins with a clear and honest understanding of your current situation. The first essential step is to create a personal balance sheet. List the money you have across all your current financial assets: Checking accounts, savings, non-retirement investments, and other liquid resources. Then list all your debts, such as credit cards, personal loans, home loans, and your mortgage.

It is also good practice to subtract at least three months of living expenses and any major purchases you anticipate in the next year from your asset total. Rank your liabilities by interest rate, starting with the highest.

Even if it may feel a little scary, completing this exercise gives you an honest picture of your financial resources and obligations. Having this information is the first step to making smarter, more targeted decisions on what to protect, which debts to prioritize, and how to move forward.

Understand good vs. bad debt

Not all debt is created equally and knowing the difference between good and bad debt is crucial for financial security.ⁱ Installment debt, such as mortgages and student loans, typically supports long-term goals and features fixed payments with a defined payoff timeline. Good debt tends to help positively support your finances in the longer term. Structured loans can also be helpful in planning your spending since you know exactly what amounts are due when.

On the other hand, credit card debt is often the most dangerous. Carrying balances on high-interest cards can trap you in a cycle of minimum payments that barely touch the principal, dramatically increasing your overall cost. When reviewing your personal balance sheet, focus on identifying the debts with the highest interest. These are considered “bad debts” that should be addressed immediately.

Calculate your debt-to-income ratio

Your debt-to-income ratio (DTI) is a critical financial health metric. This simple calculation tells you how much of your monthly take-home pay is consumed by debt payments:

DTI = (Total monthly debt payments ÷ Monthly after-tax income) × 100

Exclude your mortgage from this figure for a more accurate overview of your discretionary obligations. A ratio below 15% generally indicates stability and manageable debt. If your DTI is over 20% then it could signal increased financial stress and a need for immediate action.ⁱⁱ

Knowing your DTI helps you benchmark your financial health and track improvements as you implement new strategies.

Track and adjust spending

Developing a realistic budget requires honest tracking of your spending. Start by recording one full month of actual expenses—include housing, food, utilities, entertainment, debt payments, and savings. Look for patterns that reveal overspending, such as frequent takeout meals, impulse shopping, or overlooked subscription services. Closely review your credit card and checking account statements to see these costs. You can even use a spending calculator to help calculate your monthly spend more easily.

Before making any purchase, pause to ask: “Is this truly a need? Does it fit my priorities? Can I find a more affordable option?” By identifying and adjusting problem areas, you can reallocate more money toward getting out of debt and boosting savings.

Create a 12-month budget

Once you understand your spending habits, build a monthly budget that aligns with your financial goals. List all income sources alongside recurring (and variable) expenses, including debt repayments and a monthly savings target. Consider setting aside a specific amount of money upfront, rather than simply saving what’s left at the end of the month.

Expand this view into a 12-month budget. Planning for annual and seasonal expenses like insurance premiums, holiday spending, or travel helps ensure you aren’t blindsided and reliant on credit cards. This foresight helps you manage cash flow and remain on track to reach your targets.

Pay off high-interest debt first

Tackling debt strategically can save you significant money and shorten your repayment timeline. One recommended approach is to make minimum payments on all debts but focus any extra funds on paying down the balance with the highest interest rate. When that’s paid off, apply the freed-up payment amount to the next highest-interest debt.ⁱⁱⁱ

Choosing to pay a fixed monthly payment, that is more than the minimum, creates momentum and a clear timeline for success. Adjust your plan if needed but keep moving forward. This “debt snowball” or “avalanche” method accelerates progress and reduces overall interest costs.

Automate savings for success

One of the strongest tools for building savings is automation.^iv Arrange automatic transfers from your checking account into a savings or investment account at regular intervals. This system makes saving effortless and ensures you consistently build your emergency fund.

It is also a good idea to limit the number of credit cards you use and the frequency. To help track spending, carry only one or two cards, use cash or debit for daily transactions, and leave extra cards at home to reduce impulse spending and temptation. Making small changes in how you handle money can have a powerful impact on your financial security.

Optimize everyday spending

To save even more, you can review all your routine expenses and hunt for opportunities to cut costs. Some areas to consider:

• Reevaluate insurance plans and increase deductibles where appropriate to cut monthly costs.
• Sell underused or unwanted items.
• Minimize unnecessary utility consumption and entertainment expenses including entertainment subscriptions.
• Buy in bulk or use coupons for groceries.
• Always shop with a list to limit unplanned purchases.

These practical cost-cutting techniques maximize your income, freeing up more money for savings or debt reduction. Small, consistent changes add up quickly, improving your bottom line without massive lifestyle sacrifices.

Take the next step to financial wellness

A healthy financial future starts with an honest look at your current finances and being intentional about improving them. By assessing your assets and debts, benchmarking your debt-to-income ratio, developing a budget, focusing on high-interest obligations, and automating savings, you’ll set yourself on the path toward lasting financial stability and confidence.

Connect with an Alliant Retirement and Investment Services Financial Consultant. You can also watch the full webinar on this topic on YouTube - Alliant Retirement and Investment Services.